Two Great Forex Indicators: Bollinger Bands and Fibonacci Retracements.
Forex trading is a fascinating way of earning a living online,
and if you are seriously considering entering this fascinating
world of forex trading you must consider, by all means, the
learning and understanding of a number of indicators that will
give you invaluable help on predicting with a high probability
the directions the forex market may take as you carefully
analyze the price charts for any currency you are trading at the
moment. Two of these important indicators are: "Bollinger Bands"
and "Fibonacci Retracements".
The basic interpretation of "Bollinger Bands" is that prices
tend to stay within the space formed by the tracings of the
upper and lower bands. The distinctive characteristic of
"Bollinger Bands" is that the spacing between the bands varies
based on the volatility of the prices. During periods of extreme
currency price changes (i.e., high volatility), the bands widen
to become more forgiving. During periods of low volatility, the
bands narrow to contain currency prices. The bands are plotted
two standard deviations above and below a simple moving average.
They indicate a "sell" when prices are above the moving average
(or close to the upper band) and a "buy" when prices are below
it (or close to the lower band). The bands are used by some
forex traders in conjunction with other analyses, including RSI,
MACD, CCI, and Rate of
"Fibonacci retracement levels" are a sequence of numbers
discovered by the noted mathematician Leonardo da Pisa during
the twelfth century. These numbers describe cycles found
throughout nature and when applied to technical analysis can be
used to find pullbacks in the currency market.
"Fibonacci retracement levels" are a quite effective way to see
the future (at least in the forex markets), i.e., it involves
anticipating changes in trends as prices near the lines created
by the Fibonacci studies. After a significant price move (either
up or down), prices will often retrace a significant portion (if
not all) of the original move. As prices retrace, support and
resistance levels often occur at or near the "Fibonacci
Retracement levels" (See my articles on "Fibonacci trading" for
more detail about this).
In the currency markets, the commonly used sequence of ratios
is 23.6 %, 38.2%, 50% and 61.8%. Fibonacci retracement levels
can easily be displayed by connecting a trend line from a
perceived high point to a perceived low point. By taking the
difference between the high and low, the user can apply the %
ratios to achieve the desired pullbacks.
About the author:
Adrian Pablo; Forex trader
and freelance writer.
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Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest / trade in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading.
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